New ETF Bets on the Machinery Behind AI Chipmaking

REX Advisers will launch the REX AI Chipmaking ETF (CHIP) on Nasdaq Wednesday, according to the fund's prospectus. The fund invests in the equipment makers that build the physical machinery behind artificial intelligence (AI) chips, rather than the companies that design them. Key Takeaways: REX Advisers launches the REX AI Chipmaking ETF (CHIP) on Nasdaq Wednesday, tracking a new VettaFi index. Wafer fabrication equipment makes up half the index's weighting, ahead of advanced packaging and metrology. The underlying index has climbed 126.6% over the past year and 63.7% year-to-date.

The launch comes as spending on AI infrastructure keeps climbing, but the bottleneck isn't only the chip designers. A wave of that capital is flowing to the specialized machines needed to physically manufacture the silicon those designers create. CHIP tracks the VettaFi AI Chipmaking Index, according to the prospectus. The index targets three parts of chip production: wafer fabrication equipment, advanced packaging, and metrology. To qualify, a company must get more than half its revenue from one of those segments, though chemical suppliers are excluded entirely. The exclusion keeps the fund focused on the machines and testing tools that build chips, rather than the raw materials that go into them.

Wafer fabrication equipment carries the largest weighting in the index at 50%, the prospectus shows. That segment covers the machinery used to build silicon wafers, the foundation of every chip. Advanced packaging is weighted at 25% and covers the assembly work that boosts a chip's speed and power efficiency, the filing shows. The remaining 25% goes to metrology, the precision testing used to check chip quality during manufacturing.

The fund charges a 0.65% expense ratio and holds 55 companies that rebalance quarterly, the prospectus states. Portfolio managers Matthew Pelletier and Matthew Holcomb have run the fund since its inception this year.

Two countries dominate the index's country weighting: the United States and Japan, according to VettaFi's index factsheet. Together, they make up roughly two-thirds of the index's weighting, at 35.3% and 30.5%, as of Aug. 31. The Netherlands and Taiwan follow, though further behind, at 13.7% and 6.8%. Advantest Corp., a Japanese maker of chip-testing equipment, is the index's largest holding at 7.8%, VettaFi's factsheet shows. ASE Technology Holding Co. (ASX) and Teradyne Inc. (TER) follow at 5.8% and 5.3%. ASML Holding (ASML), Applied Materials Inc. (AMAT) and Lam Research Corp. (LRCX) round out the top holdings. Together, the 10 largest positions combine for 52.5% of the index, the factsheet shows.

The index, launched Aug. 21, has climbed 126.6% over the trailing year and 63.7% year-to-date, according to VettaFi data. Its holdings range from a $658.3 billion company to one worth $538 million, according to the factsheet.